Regulators To Deliver Collateral Rules Fast

SAN ANTONIO - To satisfy community bankers hungry for funds, federal regulators have set an aggressive timetable for new rules expanding the types of collateral that may be used to secure an advance from a Federal Home Loan bank.

The system's regulator, the Federal Housing Finance Board, will publish its proposed rule on March 22, according to chairman Bruce Morrison. The agency will accept comments for just 30 days and then issue a rule that tracks the Gramm-Leach-Bliley Act of 1999, he said.

That financial reform law made it easier for banks with less than $500 million of assets to join and borrow from a Home Loan bank. These banks may pledge small- business and farm loans as collateral for advances. Previously, Home Loan banks accepted mainly residential mortgage assets as collateral.

Congress clearly wanted to let more banks borrow from the Home Loan banks, and Mr. Morrison said the rules will reflect that intent. But while the 12 individual Home Loan banks are adept at valuing residential real estate assets, generally considered quite safe, they will need to learn how to value riskier small- business and farm loans, he said.

The Home Loan banks evaluate assets to decide how much collateral should be pledged before a bank may borrow. For example, a bank may have to put up $100 million of small- business loans to borrow $50 million. This so-called haircut is likely to be high at the beginning, Mr. Morrison said in an interview. "The haircuts will be larger rather than smaller," he said. "But they may be liberalized as there is more experience."